Negotiating Successful Contracts a'k'a' Making the Deal

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Negotiating Successful Contracts a.k.a. Making
the Deal
February 20, 2008 Susan Cote VP, Corporate
Contracts, Pricing Supply Chain Northrop
Grumman Corporation
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Northrop Grumman Vision

• Be the most trusted national security provider
• Customersprovider of choice
• Industrys employer of choice
• Shareholders investment of choice

Creating Value Through People and Technology
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• Anyone Can Make a Bad Deal.
• A Good Business Deal
• Takes Time, Patience and Skill.

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Hes a very impressive negotiator in a Mike
Tyson sort of way
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The Big D in Deal Making

• Early Involvement in the Acquisition Process
• Enhanced Communication/Clarity with Customers
• Focus on big A Acquisition issues
• requirements, budget, integration, workforce
• Listen carefully to understand customer/user
  needs
• Realistic offerings from Cost, Schedule,
  Technical perspective
• Focus on Performance deliver to commitments to
  gain trust

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Win-Win NegotiationsBenefits

• Separate the people from the problem
• Be soft on the people, hard on the problem
• Give benefit of the doubt
• Focus on interests, not positions
• Keep a broad perspective
• Explore interests
• Understand needs and drivers and alternatives
• Invent options for mutual gain
• Develop multiple options to choose from
• Insist on using objective criteria
• Reach a result based on standards not will
• Reason and be open to reason
• Yield to principle, not pressure

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• Everything is Negotiable

• (almost)

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Negotiating From Strength
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Structuring the Business Deal
Contract Formation
Contract Parameters
Contract Type (e.g., CPFF, CPIF, FPIF, FFP,
Etc.) Contract Financing (Progress Payments,
Performance-Based Payments, Advances,
Etc.) Statement of Work Technical
Specification Delivery Schedule /
Quantity Special Provisions (e.g., Business
Base Adj., EPA, Warranties, etc.) Cost Margin
Customer Acquisition
Proposal Development
Negotiation
Contract

Optimal Business Deal
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Negotiation Strategies and Best Practices

• Relationship building
• Create trust, goodwill, respect, etc.
• Separate people from the issue (attack the issue
  not the person)
• Communication
• Active listening
• Dont answer questions for the subcontractor or
  put words in their mouth wait for them to
  respond no matter how uncomfortable the silence
  may be
• Talk about information to disclose
• Remove pressure for premature commitment use
  What if scenarios to explore options
• Dont be afraid to ask for the what you want if
  you dont ask, you probably wont get it
• Interests
• Clarify the companys priorities and interests
• Ask for theirs
• Imagine their perspective wear their shoes

• Options
• Brainstorm options, including risk mitigations,
  before deciding
• Legitimacy
• Identify standards
• Use criteria as a sword Let me show you why
• Use criteria s a shield What is that based
  on?
• Use the test of reciprocity is it good for us
  and bad for them or vice versa?
• Be open to persuasion
• Alternatives
• Know the alternatives to a negotiated agreement
• What is the bottom line?
• Estimate their bottom line
• Who has the most leverage and why?

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Negotiating a Successful Business Deal
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Negotiating a Successful Business Deal
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• The Business Deal Will Never
• Get Any Better Than The Day
• You Shake Hands

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Notional Margin Chart
Margin
Northrop Grumman Margin As A Percentage of Sales
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18
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14
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8
6
4
2
0
Year 1
Year 2
Year 3
Year 4
Year
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Keys to a Successful Negotiations

• Start early as the customers requirements are
  being formed
• Influence without arrogance
• Respond to customers request for proposal
• Establish cohesive negotiation team early
• Team leader selected
• Key personnel from major functions
• Objectives and roles are clearly understood
• Prepare, prepare, prepare!!
• Knowledge is power
• Proposal inputs versus proposal submittal versus
  current proposal
• Have options and alternatives
• Patience, patience and more patience
• Understand the power of a caucus

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Cotes Ten Negotiation Commandments

• Thou shalt have no surprises
• Thou shalt communicate, communicate, communicate
• Thou shalt be open to new ideas dont try to
  predict
• Thou shalt never lose your cool
• Thou shalt listen, listen, listen with patience
• Thou shalt treat internal negotiations with the
  same care as external ones they are frequently
  more difficult
• Thou shalt always tell the truth! Even when it
  may be painful. Act with Integrity.
• Thou shalt get to know the other persons
  perspective and motivations
• Thou shalt have mutual respect which builds
  strong, trusted partnerships
• Thou shalt think and act Win--Win

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• You Can Never Fully Recover
• From a Bad Business Deal!

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Reference Materials

• Getting To Yes, Negotiating Agreement Without
  Giving In written by Roger Fisher and William
  Fry, a Penguin Books published by the Penguin
  Group
• Give and Take written by Chester L. Karrass, a
  Harper Business book
• The Negotiating Game written by Chester L.
  Karrass, a Harper Business book
• Kiss, Bow or Shake Hands written by Terri
  Morrison, Wayne A. Conaway, and George A. Borden